FEDERAL COURT OF AUSTRALIA Arktos Pty Ltd v Idyllic Nominees Pty Ltd [2003] FCA 329 TRADE PRACTICES – sale of business – whether vendor engaged in misleading conduct Trade Practices Act 1974 (Cth) ss 52, 82, 87 Fair Trading Act 1987 (WA) ss 10, 77, 79 Henville v Walker (2001) 206 CLR 459 cited Alati v Kruger (1955) 94 CLR 216 followed Munchies v Belperio (1988) 58 FCR 274 applied Henjo v Collins Marrickville (No 2) (1989) 40 FCR 76 followed Wheeler Grace & Pierucci Pty Ltd v Wright (1989) 16 IPR 189 cited ACCC v Michigan Group Pty Ltd [2002] FCA 1439 cited Malpass v Mayson [2000] Fam CA 1253 considered T and T [1984] FLC 91-588 considered P and P [Tax Evasion] [1985] FLC 91-605 considered Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375 considered A v A and B v B [2000] 1 FLR 701 (High Court of England – Family Division) considered "Colourable evasion to contractual rights when the court reports facts to the authorities" (1996) 70 ALJ 886 ARKTOS PTY LTD (ACN 093 410 247), LINDA DAVIES v IDYLLIC NOMINEES PTY LTD (ACN 085 028 057), DONALD GEORGE MOORE, DAVID IAN PRICE, SKYCORP INVESTMENTS PTY LTD (ACN 078 121 534) W6 of 2001 LEE J 11 APRIL 2003 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W6 OF 2001 BETWEEN: ARKTOS PTY LTD (ACN 093 410 247) FIRST APPLICANT LINDA DAVIES SECOND APPLICANT AND: IDYLLIC NOMINEES PTY LTD (ACN 085 028 057) FIRST RESPONDENT DONALD GEORGE MOORE SECOND RESPONDENT DAVID IAN PRICE THIRD RESPONDENT SKYCORP INVESTMENTS PTY LTD (ACN 078 121 534) FOURTH RESPONDENT JUDGE: LEE J DATE OF ORDER: 11 APRIL 2003 WHERE MADE: PERTH THE COURT ORDERS AND DECLARES THAT: 1. The First Respondent pay the First Applicant the sum of $188,173.91. 2. The First Respondent pay the Second Applicant the sum of $31,946.16. 3. The First Respondent pay 95 percent of the costs of the Applicants, taxed as one set. 4. The First Respondent indemnify the Applicants in respect of any sum the Applicants or either of them, may be liable to pay to the Fourth Respondent. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W6 OF 2001 BETWEEN: ARKTOS PTY LTD (ACN 093 410 247) FIRST APPLICANT LINDA DAVIES SECOND APPLICANT AND: IDYLLIC NOMINEES PTY LTD (ACN 085 028 057) FIRST RESPONDENT DONALD GEORGE MOORE SECOND RESPONDENT DAVID IAN PRICE THIRD RESPONDENT SKYCORP INVESTMENTS PTY LTD (ACN 078 121 534) FOURTH RESPONDENT JUDGE: LEE J DATE: 11 APRIL 2003 PLACE: PERTH REASONS FOR JUDGMENT 1 The first applicant ("Arktos") purchased a bakery and delicatessen business ("the business") from the first respondent ("Idyllic") on 30 June 2000. The second applicant ("Ms Davies"), the sole director and shareholder of Arktos, guaranteed obligations undertaken by Arktos as purchaser of the business. Pursuant to statutory rights and remedies provided by ss 82 and 87 of the Trade Practices Act 1974 (Cth) ("the Act") in respect of contravention of s 52 of the Act, the applicants seek recovery of loss suffered, and other orders against Idyllic and, in the alternative, seek damages in negligence. Arktos and Ms Davies claim that they suffered loss or damage when Arktos, by relying upon misleading conduct engaged in by Idyllic, entered the agreement to purchase the business ("the business sale agreement"). In particular, it is claimed that Arktos suffered loss by agreeing to pay a price for the business that was in excess of its "true value". In respect of the second respondent ("Moore"), Arktos claims that it suffered loss by reason of the breach by Moore of a contract of employment made between Arktos and Moore. Arktos and Ms Davies also claim that Moore is liable to each of them for loss suffered by reason of the negligent conduct by Moore in the course of his employment with Arktos. 2 It is further pleaded that it was an express term of the business sale agreement that Moore, the third respondent ("Price") and Mrs Moore, as lessees, would assign the lease of the business premises to Arktos and that, in breach of that term, the lease was not assigned. Neither Moore nor Mrs Moore was a party to the business sale agreement and Mrs Moore was not joined as a party to the proceeding. Furthermore, the documentary evidence presented to the Court shows that the lessees, (in fact, in part, assignees and, in part, lessees), were Moore, Price and Mrs Price. Mrs Price was not a party to the business sale agreement or the proceeding. The breach pleaded was relied upon to ground an alternative pleading that Idyllic had "repudiated" the business sale agreement and that such repudiation had been accepted by Arktos. 3 In respect of the fourth respondent ("Skycorp"), the lessor of the business premises, the applicants claim damages from Skycorp for an act of trespass alleged to have occurred when Skycorp re‑took possession of the premises. In directions made prior to trial it was ordered that the claim against Skycorp be stood over until the claims against Idyllic and Moore had been determined. 4 The business, situated in a retail complex known as Sorrento Quay north of Perth, commenced in December 1998. Before that date, two separate businesses in adjacent premises had been conducted by Moore and Price respectively. Moore had operated a bakery and Price a delicatessen. Apparently businesses of that type had been conducted on those premises for approximately 10 years. In 1998, Moore and Price decided to combine their businesses and, through Idyllic, operate a new business on the bakery premises. Skycorp agreed to enlarge the leased area of the bakery premises for that purpose. The lease of the bakery premises was assigned by the lessees (Moore and other family members) to Moore, Price and Mrs Price, and the premises were extended by a lease of an adjacent area from Skycorp to Moore, Price and Mrs Price. Skycorp agreed to renew the lease of the enlarged premises for a term of eight years from the date of expiration of the existing lease, 31 August 2001. The business carried on by Idyllic was regarded as a "partnership" by the Moore and Price interests. Idyllic was trustee of the Moore and Price family trusts and operated the business on trust for the said trusts in equal shares. 5 In about January 2000 the sister of Ms Davies, who was an employee of the business, and who had been employed by Moore in his bakery business, became aware of the wish of Moore and Price to sell the business in whole or in part. She passed that information to Ms Davies. Ms Davies, then aged about 54, thought that the business would be an investment from which she could derive a reasonable income. It seems that Ms Davies may have regarded the chance to purchase the business with some enthusiasm for shortly after her sister had informed her of the likelihood of the business being offered for sale, Ms Davies took steps to sell her residence and by 24 March 2000 had funds on hand from the sale of that property available for application to the purchase of the business. Ms Davies had had no experience in operating a retail business. Her usual employment was as a credit manager. 6 In early April 2000 Ms Davies began discussions with Price on purchasing the half share in the business held on trust for the Price family trust. Ms Davies also had discussions with Moore and it was contemplated by Ms Davies and Moore that they would continue the business in "partnership" if she purchased the "Price" interest. 7 As a result of her discussions with Price, and after consideration of documents handed to her by Price, Ms Davies, by letter dated 30 April, offered to buy the "Price" share in the business for a sum of $127,000, settlement to take place on 30 June 2000. By letter dated 6 May 2000 Price counter‑offered by setting the price of the share at $147,000, that price to include "GST" compatible computer, software, and tills to be purchased by Price. A goods and services tax was to commence on 1 July 2000. 8 On 20 June 2000 Ms Davies executed an Offer and Acceptance form in which Arktos, as purchaser, offered to buy the "business" for a price of $130,000, settlement to be effected on 30 June 2000. On the same day Price and Mrs Price, as directors of Idyllic, trustee of the Price family trust, accepted the offer. It was a condition of the offer that Moore "[agree] to the formation of a business partnership with the purchaser". Thereafter events moved fairly rapidly, for by facsimile letter dated 22 June 2000 Ms Davies informed the managing agents of the marina complex that the whole of the business would be purchased and, therefore, the lease of the business premises would be in her name only (and not in the names of Moore and Ms Davies as previously indicated). 9 At about the same time, Moore instructed solicitors to prepare the business sale agreement, the parties to which were to be Idyllic as vendor, Arktos as purchaser, Price as "Covenantor" and Ms Davies as the guarantor of the covenants provided by Arktos. The covenant to be provided by Price was that he would not operate in competition with Arktos for three years. On 30 June 2000 the business sale agreement was presented to the parties for execution. It appears to have been executed immediately before settlement. Settlement seems to have been arranged at short notice and, perhaps, to have been informal in that no document was proffered to Arktos which recorded that the pre‑conditions for settlement of the transaction had been satisfied. For example, there was no confirmation that Skycorp had consented to assignment of the lease of the business premises to Arktos. 10 The business sale agreement provided that the purchase price for the business was $320,000, allocated as follows: $230,000 for goodwill; $80,000 for plant and equipment; $10,000 for stock. Before execution the business sale agreement was amended by the parties by handwritten alterations to the clause dealing with payment of the purchase price. The amendments provided that the purchase price was to be paid, as to $130,000, by delivery of a bank cheque to Idyllic as trustee for the Price family trust and, as to $180,000, by payment to Idyllic as trustee of the Moore family trust in three instalments of $60,000, payable on 15 January 2001, 15 January 2002 and 15 January 2003. Payment of the balance of $10,000 appears to have been overlooked in the amendments. The business sale agreement also provided that Idyllic would pay to Arktos on settlement the monetary value of all "pro rata" holiday and long service leave entitlements that had accrued to "the continuing employees" set out in a schedule to the agreement. That schedule indicated that only one employee, Stephen Ross ("Ross"), was a continuing employee and that an amount of $1,625 had accrued for annual leave for that employee. No sum was said to have accrued as long service leave. 11 In the course of the following six months Arktos was unable to operate the business profitably. On 22 December 2000 Arktos purported to rescind the business sale agreement and demanded from Idyllic repayment of so much of the purchase price as had been paid, namely, $130,000. Arktos stated that henceforth it would operate the business as caretaker for Idyllic if Idyllic refused to retake possession of the business. 12 On 5 February 2001 Skycorp re-entered possession of the premises and evicted Arktos, thereby terminating the business as a going concern. On 9 February 2001 Skycorp gave notice to Moore, Price and Mrs Price that they had defaulted under the lease and on 28 February 2001 gave notice to Moore, Price and Mrs Price, and to Ms Davies, that the lease was terminated. 13 On 15 February 2001 Idyllic purported to serve a notice under the default provisions of cl 12 of the business sale agreement. The default specified was the failure of Arktos to pay to Idyllic the sum of $60,000 on 15 January 2001. The notice required Arktos to pay that sum by 9 March 2001 and stated that if Arktos did not comply with the notice Idyllic, at its election, may either bring proceedings against Arktos to remedy the default, or terminate the business sale agreement and sue Arktos for damages. By its cross‑claim Idyllic pleaded that on 9 March 2001, pursuant to the terms of the business sale agreement, it had elected to "terminate" the agreement. It claimed damages from Arktos for breach of the agreement and sought to recover that sum from Ms Davies as guarantor of Arktos's obligations. 14 The essence of the claims made by Arktos and Ms Davies was that Moore and Price, on behalf of Idyllic, misrepresented the profitability and worth of the business and that Arktos, through Ms Davies, relied on those misrepresentations when it decided to purchase the business. Idyllic contended that the business failed because Arktos and Ms Davies lacked management skills. 15 Ms Davies was the principal witness for the applicants. I found her evidence to be more persuasive than that of Price or Moore on whose evidence the case of the respondents relied. As may be expected in such matters, no witness had a complete and accurate recollection of events that had occurred but I found Ms Davies to be more impressive and her evidence generally to be more consistent with the contents of documentary evidence. 16 The major representation alleged to have been made to Ms Davies and relied upon by her, and thereby Arktos, was that the business was profitable and worth the price asked for it. The position of the respondents at trial was that the business had been profitable and, therefore, the making of that representation, either directly or by implication, was not denied. In the course of negotiation of the sale of the business, profit and loss statements prepared by Idyllic's accountants were presented to Ms Davies by Price. Those documents stated that net profits of approximately $8,000 and $42,000 had been obtained in the periods of six months ending 30 June 1999 and 31 December 1999 respectively. It was further represented in a handwritten memorandum prepared by Price and delivered to Ms Davies ("the Price memorandum") that the "actual" turnover of the business exceeded the "book" turnover reflected in the profit and loss statements, and that the "asking" price for the business had been calculated after Price "had many and long discussions with the broker we … appointed to sell the business". The "broker" instructed by Idyllic was a real estate agency trading as Ray White – Sorrento ("Ray White"). The Price memorandum indicated that at about the end of March 2000 Ray White had calculated the "asking" price for the business at $350,000 - apportioned $255,000 to goodwill, $80,000 to plant and $15,000 to stock. The Price memorandum stated that Ray White had "projected an annual turnover of between $750,000 to $800,000 … based on book figures only" and implied that Ray White's calculation of the "asking" price was also based on those figures. 17 The turnover projection for the year ending 30 June 2000 was set out in a trading statement prepared by Ray White ("the projected trading statement"). The projected trading statement was prepared in the alternative, one calculation said to be "as per a/c books" and the other "actual". The Price memorandum explained that the difference between "book" and "actual" figures for turnover between 1 July 1999 and 31 March 2000 (about $77,000) was as follows: "The difference in book to actual is predominantly our wages bill. The combined wages (book) of the three partners [sic], bakers and casuals is $69574.09 while the actual wages bill for all parties is $142496.44." 18 The Price memorandum alerted Ms Davies to the sensitivity of the foregoing information: "Please be very discreet with this information for obvious reasons [Emphasis in original]. … I must stress again the importance of being very discreet with these figures. In the wrong hands it could get a few people into a lot of trouble." 19 The thrust of the representation by Idyllic that "actual" turnover was greater than "book" turnover was that the business was more profitable than shown in the books of account and that Price and Mrs Price and Moore received further income in cash in addition to distribution of the net profit equally between their family trusts. Although Moore, Price and Mrs Price rendered services to the business (Moore in baking duties, Price and Mrs Price in management and customer service) there was no evidence that wages were paid to them as employees of Idyllic. In the instructions given to the solicitors for preparation of the business sale agreement, Moore stated that Price and Mrs Price on the one hand, and Moore on the other, made weekly "drawings" of $350 and $250 respectively. No formal record of wages paid to staff was produced by Idyllic and the evidence of Price and Moore as to the existence of such a record was vague, inconsistent and unsatisfactory. In cross-examination on this aspect Price changed his evidence on numerous occasions and was most unconvincing. It was conceded that such records as there were, namely, handwritten summaries made by Price from group certificates of the wages paid each quarter, stated that the amount of wages paid and recorded for income tax purposes for the six months to 31 December 1999, was $44,515 not $36,342 as shown in the profit and loss statement for that period. If the figure recorded by Price was the correct "book" figure for wages paid, it followed that the profit and loss statement for that period over-stated the net profit by approximately $8,000, ie about 23.5 percent. 20 The "book" figures set out in the Price memorandum, included projections of turnover for April, May and June 2000, from which a projected annual turnover of $752,587 was constructed. The "actual" figures for the same period, including projected results for the last quarter, showed an annual turnover of $850,926. In both the Price memorandum and the projected trading statement, the difference in turnover between "book" and "actual" was approximately $98,500. In the projected trading statement the anticipated trading figures for the final quarter was $7,000 higher than set out in the Price memorandum. Accordingly, in the projected trading statement the "book" turnover was $759,587 and the "actual" $857,926. It may be thought that the statement in the Price memorandum that Ray White had "projected an annual turnover of between $750,000 to $800,000…based on book figures only" involved a degree of hyperbole. The projected trading statement stated that the amount of "book" wages paid to 30 June 2000 would be $64,232 and "actual" wages $143,914. Both sums were said to exclude payments to "partners". As noted earlier, the Price memorandum stated that inclusive of payments to "partners" the amount of "book" wages was $69,574.09 and the "actual" wages $142,496.44. Whether the comparison made by Price was on figures as at 31 March 2000 is unclear. 21 The accounts for the year ended 30 June 2000 prepared by accountants instructed by Idyllic recorded that wages paid for that year were $79,863. The accounts were filed in support of the tax return filed by Idyllic. The accounts, and the tax return, showed that the net profit received by Idyllic from the business in that year was $56,693 distributed equally between the Price and Moore family trusts. The accounts noted that the Price family trust had "drawn" $34,077 and the Moore family Trust $22,971. 22 The "net profit" set out in the projected trading statement, on which the "asking" price of $350,000 was calculated, was $155,043 on "book" figures and $169,716 on "actual". That "net profit" included an "added-back" provision for depreciation of plant and fittings. The difference between "book" and "actual" net profit was approximately $14,700 and represented the remainder of unrecorded income from sales after payment therefrom of unrecorded expenses, discussed below. 23 Coincidentally, the "net profit" relied upon by Ray White to "appraise" the business and calculate a price at which to put the business on the market was approximately $98,500 more than the net profit recorded in the accounts prepared for that financial year. The difference arose by the projected trading statement "adding-back" a $16,000 provision for depreciation; overstating sales by $12,000; understating the cost of goods sold by $30,000, and understating other expenses incurred by the business by $40,500. No explanation was offered to the Court as to the instructions given to Ray White by Idyllic in regard to the overstated and understated items. 24 According to the "book" and "actual" figures set out in the projected trading statement, $83,500 of the sum of $98,500 received by the business as unrecorded income, was disbursed on expenses not recorded in the "books", in particular, $79,700 on additional wages. In other words, the turnover of the business had to be at least $80,000 more than that recorded in the books of account to meet the actual costs of the business and provide the net profit recorded in the accounts, namely $56,693. Furthermore, the undisclosed costs of the business would have been substantially more than the amounts disbursed in those cash payments which did not include provision for income tax instalments or superannuation contributions on the wages paid, nor for the creation of reserves for the payment of leave entitlements based on wages paid. 25 Ray White calculated the goodwill of the business at $255,000 based on the capacity of the business to earn a "net profit" of approximately $155,000 before depreciation. It would appear that goodwill was assessed at approximately 1.5 times that "profit". It is likely, however, that the net profit of the business was not only substantially less than the figure relied upon by Ray White but also substantially less than the amount of net profit shown in the annual accounts, if it is accepted that the true expenses of the business were not recorded. Pursuant to the concession referred to in [19] above, the net profit in the annual accounts had to be reduced to about $48,500. Furthermore, the annual accounts showed a sharp decline in net profit for the period of six months to 30 June 2000, notwithstanding that, as pointed out in a report or valuation of the business prepared by a business valuer, Mr Lingard, 54 percent of the sales of the business occurred in that period. The net profit earned by the business between 1 January 2000 and 30 June 2000 was only $14,500. 26 The report prepared by Mr Lingard, the content of which was not challenged, stated that an optimal valuation of the worth of the business, based on net earnings before provision for depreciation according to the annual accounts, would have been $181,000. That valuation was calculated with regard to the market requirement that an investor obtain at least a 40 percent return on the investment to offset the risk involved in such a purchase, although it was acknowledged that purchasers of retail bakery businesses required the greater risk inherent in those businesses to be met by a 60 percent return on the capital invested. Provision for such a risk would value the business at only $121,000. After allowing $80,000 for plant and equipment and $10,000 for stock, the value of goodwill therefore, would have been no more than $31,000 - $91,000. Mr Lingard reported that if the true wage costs of the business were as recorded in the accounts of Arktos, the worth of the business would be less than the sum allocated to plant and stock. 27 Given the trend of declining profit exposed in the annual accounts and the probability that the true costs of the business were not recorded in the books of account and were greater than the amount met from unrecorded sales, I would conclude that the worth of the business at the time of sale was substantially less than $180,000. As at 1 July 2000 there was a real risk that the true costs of the business were occasioning the business to trade at a minimal profit. 28 In cross‑examination Ms Davies made it clear that the principal cause for her decision on behalf of Arktos to enter the business sale agreement was the reliance she placed upon the representation made to her in the Price memorandum that the "broker" had calculated the "asking" price of $350,000 and had done so on "book" figures. Rolled up in that representation was the additional representation that the profitability of the business recorded in the books of account established the worth of the business as reflected in the "asking" price. Price told Ms Davies that Ray White had perused the "cash book" in its "appraisal" of the business. Ms Davies's evidence was as follows: "Basically is it fair to say then that, having sighted the books, they weren't important to you and what you say was important to you was that [Moore] would remain with you?---The fact that the broker had given a valuation, a sworn valuation of $350,000, pointed out to me that the figures, the book figures, were more or less – were accurate. … To come back again to the point, would it be fair to say that you then did not rely on the books shown to you in coming to your decision to purchase this business?---That's not true. I relied upon the figures that had been produced from those books – if they were the only available books that had been produced – and those figures were not really audited because it takes an accountant, but the broker had actually gone through the figures, had gone through everything and itemised everything and then the broker had gone and sort of – yes, I relied upon the values from the books. … Did you take the values from the books?---The broker took the value from the books – the recorded values. Did you take the values from the books?---No, I didn't take the values from the books. So you then did not yourself rely on these books, did you?---I relied upon a professional's opinion of the books – of the values of the company. You yourself did not rely on these books, did you?---I relied upon the totals that were contained within those books that were then vetted by the broker who, in my estimation, was a professional that had too much to lose, by you know, hypothetical figures in the valuing of a business. You yourself did not rely on these books, did you?---I relied upon the contents and the value within that book. You didn't satisfy yourself by inspection of these books as to the contents of these books, did you?---I didn't have the time to satisfy myself. I was not allowed to take bank statements home. I was not allowed to take cash stubs home. I asked for the documentation. I was told, 'We'll give you a few invoices just so you can see values of things, such as drinks and ice-cream and so on.' I wasn't allowed to take anything home. I was allowed to take cashbook home and a handful of invoices. There was no way I could go through it in any great detail. Therefore I relied upon the contents and the values shown within the books that had been vetted by a professional, being the broker and that they would then have to produce to an accountant and have audited accounts. … So would it be fair to say that at least in your mind the memorandum prepared by Mr Price was not reliable? --- I thought the memorandum prepared by Mr Price was extremely reliable. It had been vetted and the figures had been proven by the broker and upon which he had based his valuation of the business and the broker, without any input from Ian, had done the projections for the final three months, which is why there were no audited accounts available because they'd only had a nine-month trading period. Could you just explain to me the documentation you rely on for the statement you've just made, the reference to the last three months? --- I don't understand your question. You've just referred to the last three months and you've referred to a broker and documents. Tell me what documents you're talking about?---The memorandum, if you look at the memorandum, was prepared [sic]. The figures were checked by the broker. They were only nine months' trading at that stage and the projected figures to my understanding from what I was told had been produced by the broker – there was no audited accounts because there's only a nine-month trading period at that stage in that financial year and the broker had based his valuation on the figures that he had gone through. Where did you imagine this broker got the figures from?---He got the figures from the cashbook, obviously the totals and deposits, and I assume the bank statements he would have got them from. He would have verified the deposits in the bank statements and the outgoings in the bank statement. Who do you think would have prepared those, the cashbook or ---?---The manual cashbook was prepared by Ian. The actual proving of the manual, the details within the manual cashbook, against bank statements would have been the job of the broker because no professional, in my eyes anyway, would take somebody's word if you want to sell a – it just seemed illogical to me that a broker would place a valuation on a business based on nothing. You've told us Mr Price prepared these documents. If you seriously thought Mr Price was cheating, why would you rely on these documents supplied to the broker?---Because the broker would not rely upon the cashbook alone. The broker would rely upon the cashbook against the contents of any bank account, so whereas the cashbook might have been untidy or not kept in – the actual figures would have to be accurate. The actual totals would have to be accurate. Isn't it true, Mrs Davies, that you didn't believe for a minute that the Prices were cheating Mr Moore?---No, that's not true. And isn't it the case that if you had believed that the Prices were cheating Mr Moore, you simply could never have relied on what you say the broker relied on?---The broker would have to rely upon not just the cashbook, but the contents of the bank statements. The bank statements don't lie. You can put figures down into a cashbook. You reconcile the cashbook back to the bank statements. The income and the outgoings have to be valid and it's on those figures that the broker based his valuation of the business." 29 The representations that the books of account and profitability of the business supported the "asking" price and that the business was worth $350,000 were false. As set out above, the business had a value substantially below that sum and also well below the sale price of $320,000. Further, the business was not sufficiently profitable to support the sale price. Importantly, the representation in the memorandum supplied to Ray White by Idyllic that the business would earn a "net profit" of $155,000 was false or was a representation as to a future event for which no reasonable grounds existed. That representation was relied upon by Ray White to set $350,000 as the worth of the business, and grounded the representation to Ms Davies by Price that the profitability of the business was such that the true worth and value of the business was $350,000. 30 Although in the light of the foregoing it is unnecessary to deal with other particulars of misleading conduct sought to be relied upon by Arktos and Ms Davies, the following comments may be made. 31 With regard to the claim that Idyllic represented that "$130,000 or thereabouts" had been spent on a major refurbishment and plant and equipment, a statement was made in the Price memorandum that such expenditure had been incurred before the business began trading in December 1998 and the memorandum referred Ms Davies to a depreciation schedule. The cost of work done on improvements to the premises was about $96,000. Plant and equipment was acquired at a cost of $23,500. It was the plant and equipment that had been used by Price and Moore in their respective businesses. Other costs incurred in setting up the business amounted to about $8,000. In broad terms, therefore, the cost of "refurbishment" and plant and equipment was as represented. 32 Arktos contended, however, that the representation carried the further implication that the plant and equipment was "up to date" and in good working order. There was no representation as to the acquisition of new or "up to date" equipment and, insofar as there was any implied representation as to the state of repair of the plant and equipment, it was to the effect that it was satisfactory for the purpose of the business. That representation was not shown to be false in any significant respect. In the business sale agreement Idyllic warranted that all plant and equipment was in good working order at settlement, "fair wear and tear excepted". Arktos did not assert that Idyllic breached that warranty. 33 Arktos also claimed that Idyllic engaged in misleading conduct by the Price memorandum representing that turnover in each of the months of January, February and March 2000 showed an increase of approximately 40 percent over the turnover obtained for the same months in 1999. In large measure this representation was subsumed in the principal representation as to the worth of the business. To that extent it is unnecessary to deal with the lesser representation separately but it may be noted that discovery provided by Idyllic produced no accounts or records of trading able to speak to the comparison represented. I note that Idyllic's annual accounts to the 30 June 2000 show, by reference to comparative figures, that the turnover for the year ending 30 June 1999 (a trading period of approximately six months) was $322,641 and was $747,407 for the whole of the year ending 30 June 2000. Gross profit in those periods is shown as $131,226 and $317,773 respectively. If the figures for the year ending 30 June 1999 are doubled to provide a notional comparison, the appreciation in turnover and gross profit for the year ending 30 June 2000 would only be in the order of 15 percent and 20 percent respectively, notwithstanding the lower turnover base said to be represented by the figures for the period to 30 June 1999. 34 It may be said that if Idyllic cannot produce the primary documents that record the comparisons in trade then, in the absence of a credible explanation as to the whereabouts of the documents, it should be concluded that it was not in a position to represent that such a comparison could be made or that such an appreciation in turnover had occurred. 35 Arktos also contended that Idyllic engaged in misleading conduct by failing to inform Arktos prior to entering into the business sale agreement, or before settlement, that the health department of the local authority had issued requisitions to Idyllic which required "substantial alteration to the premises" to be effected and that such requisition had been outstanding for more than a year. This ground was not pressed in submissions. A local authority health department inspection was carried out on 19 June 2000. It referred to a number of requirements relating to hygiene and parathetically added the following: "Note: Food premises does not meet significant structural requirement of the Food Hygiene Regulations. This will need to be addressed and a solution found between Proprietor and Health Services." 36 It does not appear that the content of the local authority report and requisitions was disclosed in full to Arktos before settlement. Idyllic did covenant in the business sale agreement that it would inform Arktos up until settlement of any "exceptional, abnormal or extraordinary items, transactions, or occurrences concerning the Business" but did not warrant that no requisitions from the local authority were then outstanding. 37 Whatever may have been the case at settlement, it does not appear that the note to the requisitions issued by the local authority on 19 June 2000 was taken any further and subsequent requisitions directed to Arktos by the local authority were concerned only with matters of hygiene. No case has been made out on this particular and I note that no claim was made against Idyllic for breach of the covenant it provided under the business sale agreement. 38 Arktos also claimed that in the Price memorandum, Idyllic represented that purchases by commercial customers of the business were sufficient to meet rental and rental outgoings of the business including, inter alia, gas and electricity. A list of commercial customers and their monthly purchases between March 1999 and March 2000 was handed to Ms Davies with the Price memorandum. That list indicated that from about September 1999 to March 2000 purchases by commercial customers averaged about $13,000 a month which was sufficient to cover rent and "rental outgoings". Arktos did not enjoy that level of trade in taking over the business in July 2000. It would appear that as at 1 July 2000 several of the commercial customers had taken part, or all, of their business elsewhere. Again, the particular representation may be taken to have been subsumed within the principal representation as to the worth of the business according to turnover and profitability. Arktos would have been aware that retention of commercial customers would be subject to competition. It would have been the represented worth of the business on which Arktos would have relied and acted even if Arktos had been informed at settlement that one or more commercial customers had diminished their orders in May-June 2000. 39 With regard to the "rental outgoings" of the business it may be noted that Idyllic's accounts for the year ended 30 June 2000, and the profit and loss statements to 30 June 1999 and 31 December 1999, record expenses for gas but no expense for electricity. Arktos incurred expenses for gas at about the same level as Idyllic and incurred electricity charges of $10,576 for the seven months in which it traded. Why Idyllic had no expenses for electricity was not explained. 40 Further conduct in contravention of s 52 of the Act alleged against Idyllic consisted of representations said to have been made on behalf of Idyllic by Moore, which, it is said, were false or were made in respect of future matters and not based on reasonable grounds. 41 Arktos asserted that Moore told Ms Davies that Price and Ms Price were "cheating" him by taking "additional money" from the business without authority. It was pleaded that the representation made was that the turnover of the business was greater than recorded in the profit and loss statements and that Ms Davies relied upon that representation when deciding on behalf of Arktos to purchase the business. 42 Moore denied that he had made such a statement to Ms Davies. I note, however, that the solicitors instructed by Moore in respect of preparation of the business sale agreement stated in the letter which forwarded the business sale agreement to Moore for execution, that Moore had instructed them that he and Price were in dispute over a sum of $20,000 said by Moore to have been taken from Idyllic by Price without authority. 43 Whether Moore made such a statement to Ms Davies is unnecessary to determine. The thrust of Ms Davies' evidence was that she formed no opinion one way or the other on whether Price and Mrs Price had "cheated" Moore, although she had noted that there was an accounting entry for a $20,000 "drawing" in favour of Price. As discussed earlier, Ms Davies stated that she relied on the figures for the business represented by Price as "vetted" and "proven" by the "broker" and those figures included the entry for "drawings". It follows that insofar as any representation as to the turnover was relied upon by Ms Davies, it was a representation in the Price memorandum. 44 Arktos asserted also that other representations by Moore involving misleading conduct by Idyllic were statements by Moore that he was a "master baker", that he could and would manage the bakery operations of the business and become an employee of Arktos after the business had been sold. I am not persuaded that Moore stated that he was a "master baker". I am satisfied that, in broad terms, he informed Ms Davies, and that in a substantial degree it was true, that he had experience and skill in baking duties and was competent to manage that part of the business. Insofar as it was represented that Moore would continue in employment and manage the bakery business, that circumstance occurred as represented. 45 In any event the essence of the claim that Idyllic engaged in misleading conduct in respect of the foregoing statements by Moore were said to be found in a representation implied in those statements, namely, that the bakery would be managed and operated at the same or similar level of turnover and profit as represented by the Price memorandum, and I am unable to discern such an implied representation by Idyllic in the statements made by Moore as to his willingness and competence for engagement in future employment by Arktos. 46 Having regard to the foregoing matters, I accept that Ms Davies relied on misleading conduct engaged in by Idyllic in trade or commerce to decide, on behalf of Arktos, to enter into the business sale agreement and to pay $320,000 for a business worth no more than $150,000 and probably worth less than the sum of $90,000 allocated to plant, equipment and stock. It follows that by reason of the contravention of s 52 of the Act by Idyllic, Arktos was entitled to obtain the remedies provided by the Act. Any alleged shortcoming in management of the business by Arktos did not affect the entitlement of Arktos to obtain orders under the Act. (see: Henville v Walker (2001) 206 CLR 459 per Hayne J at [163]). 47 There was no pleading in deceit other than, by implication, as a foundation justifying the act of rescission by Arktos. The pleading in negligence against Idyllic provides lesser remedies than are available under the Act and, therefore, there is no need to deal with that pleading. With regard to the pleading that Idyllic breached or repudiated the business sale agreement, the following comments may be made. 48 Clause 6.1(b) of the business sale agreement stated that the sale and purchase of the business was subject to, and conditional upon, Idyllic: "… at or prior to the Settlement Date procuring the owners of the Premises to consent to enter into an assignment of the lease currently entered into by [Moore, Price and Mrs Price] in respect of the Premises in favour of the Purchaser." The "Purchaser", of course, was Arktos. The clause then continued, relevantly: "6.2 If any of the conditions specified in cl 6.1 are not satisfied on or before the day THIRTY (30) days after written notice is given by the Purchaser to the Vendor, then the Purchaser may at any time after that day terminate this agreement and all monies paid by the Purchaser to the Vendor will be refunded together with interest and no party shall have any further claim against the other. If any condition is not satisfied prior to settlement, settlement will not be or be deemed to be a waiver of that condition." 49 It does not appear that at, or prior to, settlement, or at any time before 22 December 2000, did Idyllic procure the consent of Skycorp to the assignment of the lease from Moore, Price and Mrs Price to Arktos. It could be said that by the letter dated 22 December 2000, in which Arktos sought to rescind the business sale agreement and recover the partly paid purchase price, Arktos, for the purpose of cl 6.2, gave notice to Idyllic that if Idyllic contended that the business sale agreement had not been duly rescinded by Arktos, Arktos would assert that, 30 days after the notice, the business sale agreement would terminate pursuant to the terms of cl 6.2 for non‑fulfilment of a condition. After receipt of that notice Idyllic did not procure the consent of Skycorp to the assignment of the lease to Arktos. It may have been argued that the business sale agreement terminated pursuant to its terms on or about 21 January 2001 and that Idyllic thereupon became liable to refund to Arktos so much of the purchase price as had been paid by Arktos. Arktos, however, did not submit that case. 50 In its defence Idyllic admitted that Moore, Price and Mrs Price did not assign the lease to Arktos and, impliedly, contended that the business sale agreement had been varied by an oral agreement made between Arktos, Ms Davies and Idyllic to the effect that the assignee of the lease would be Ms Davies and not Arktos. Idyllic did not state that it had procured Skycorp's consent to such an assignment but did plead, impliedly, that it would be unconscionable for Arktos to assert, and that Arktos was estopped from asserting, that the condition as to procurement of consent to assignment had not been fulfilled by Idyllic. 51 Evidence was presented on this point by Ms Davies and Nigel Steven ("Steven"), manager of the managing agent. Steven's evidence was contradictory and unsatisfactory on relevant issues. It appears to be common ground that Steven and Ms Davies had a conversation on about 20 June 2000 in which the name or names of the proposed assignee were discussed. Ms Davies gave evidence that she was asked words to the effect as to "whether Don's [Moore] name was to come off the lease, or whether Don's name was to stay on the lease". On 22 June 2000, Ms Davies sent Steven a letter by facsimile stating: "As discussed yesterday, please accept this facsimile as confirmation that the new Lease in respect of the Bakery has to be in my name only. Both Don and myself are meeting today to finalise personal details with respect to a mutually acceptable repayment schedule, but he has reaffirmed his wish to finalise purchase of his 50% stake, so it will be going ahead as planned." 52 On 23 June 2000, Steven wrote to Ms Davies in reference to "your application for an assignment of the Lease", and asked Ms Davies to provide a signed and witnessed statement of all her assets and liabilities, and details of the lessee, to wit, "Full name, including middle name if applicable, and address". Apparently Ms Davies provided a statement of assets and liabilities but no details of the assignee. 53 Steven stated that on receipt of the letter from Ms Davies dated 22 June 2000, an assignment of lease was prepared in the name of Ms Davies. He stated that he forwarded a copy of the assignment to Price and Mrs Price for execution on about 12 July 2000. On or about 21 July 2000 Steven wrote to Moore in similar terms, requesting the latter to execute and return the assignment of lease. There was a further letter from Steven to Moore, dated 4 January 2001, in the following terms: "We refer to our letter of 21 July 2000 and attached Assignment of Lease Deed (4 copies) requesting your execution and return. This matter is now urgent and we require the return of the executed documents without further delay. Failure to comply with our request will place you in breach of the Lease. We also advise that until the Deeds are executed by all relevant parties you remain responsible for performance of the Lease including all Lease payments. You are respectfully requested to telephone this office by close of business Monday 8 January 2001 to advise when the Deeds will be returned. Should you not contact us by the requested time we will be forced to seek legal remedy." Steven confirmed that the assignment had not been sent to Ms Davies for execution. 54 Ms Davies said that she had acquired Arktos only for the purpose of buying the business and that she intended that it would be the "lessee". She had sent the letter dated 22 June 2000 to Steven in response to a query from him as to "whether the lease was to be in both my name and Don's name". She then said that when asked by Steven to provide a statement of assets and liabilities, it did not occur to her that it was thought that she would be the "lessee". She stated that Arktos was a "$2 company" of which she was sole director and shareholder, and as an experienced credit manager, she assumed that the lessor would require a personal guarantee from her if Arktos was to take on the obligation of the lessees. Prior to settlement Skycorp (through its managing agent) had rendered an account for "assignment fees" and for solicitors' costs for preparation of an assignment, and those fees and costs were discharged by Arktos. 55 Ms Davies said that she was not given a copy of the lease when she bought the business, and she had not seen any documents relating to the assignment of the lease until after legal proceedings were commenced. She had "assumed that the lease had been assigned to Arktos, in accordance with the agreement to purchase the business". All rent had been paid to the managing agent from a cheque account in the name of Arktos. 56 It was not in issue that up until at least 4 January 2001 Moore had not returned the deed of assignment. The copy of the deed produced to the Court had not been executed by any party. Steven told the Court that he "thought [he] had provided" a copy executed by Moore. 57 In a letter dated 17 January 2001, solicitors acting for Ms Davies and Arktos wrote to Steven advising that Arktos had rescinded the agreement with Idyllic and that Arktos would not now execute any assignment. Steven was advised that Arktos regarded itself as caretaker of the business until litigation was concluded and would continue to operate the business, pay rent and otherwise maintain the status quo. 58 A response to that letter was made by solicitors for Skycorp on 22 January 2001, stating that it would be unacceptable for Arktos to remain in occupation of the premises as caretaker of the business. It noted the advice that Arktos had rescinded the purchase agreement and that Arktos "refuses to execute any assignment whereby it would agree with our client to perform the terms and conditions of the Lease". The letter further advised that Skycorp had not consented to assignment of the lease of the premises to Arktos. 59 Certainly, in June 2000 there was some confusion between Steven and Ms Davies in regard to the name of the assignee. Ms Davies understood Steven to be seeking to clarify whether Moore's name would be "staying on the lease". Ms Davies asserted that by responding that the lease would be in her name only she assumed that Steven was aware that she was speaking in general terms and that the purchaser, Arktos, would be the assignee. I accept that explanation as being consistent with the circumstances. Ms Davies was unable to correct the erroneous assumption reflected in the assignment deed as prepared, as she was not provided with a copy of the proposed assignment until after the business sale agreement had been rescinded. Ms Davies said that she asked Steven for a copy of the "lease" on a number of occasions but it had not been provided. The deed of assignment prepared for execution by the parties was retained by Moore for more than five months without action or explanation. 60 Given the finding later in these reasons that Arktos duly rescinded the business sale agreement, pleadings of breach or "repudiation" become irrelevant and it is unnecessary to deal with them. It may be said, however, that the evidence presented did not permit a finding that Ms Davies, Arktos and Idyllic made an oral agreement to vary the business sale agreement to replace Arktos with Ms Davies as the assignee of the lease of the business premises. The parties did not turn their minds to amendment of the business sale agreement in that respect and, indeed, gave little attention to completion of the formalities of that assignment. If the assignment prepared by Skycorp's solicitors had been presented to Ms Davies for execution at, or shortly after, settlement, or indeed at any time before Arktos rescinded the business sale agreement, Ms Davies would have responded that Arktos was to be the assignee. I am satisfied that at settlement Ms Davies was prepared to execute the assignment as guarantor for Arktos, although not required to do so under the business sale agreement. Events that occurred subsequent to rescission were of no relevance to the defence pleaded by Idyllic. 61 Although the inexperience of Ms Davies may have caused some problems for Arktos in operating the business to its best advantage, Ms Davies did have a capacity for enterprise and initiative and may have introduced improvements to the business in due course had it been a soundly-based concern. In respect of the bakery aspect of the business, Ms Davies and Arktos relied upon Moore to deal with such contingencies as may occur in that regard and to assist it in matters beyond the competence of Ms Davies. 62 In respect of the loss of the services of the baker, Ross, that occurred in late August 2000, that event was the occurrence of a contingency to be faced in the running of the business and, perhaps, one that held a greater risk of occurrence after the introduction of a new proprietor. That event caused the loss of commercial customers and affected the reputation of the business. Eventually it led to an examination of the true nature of the business and the realization by Ms Davies, and Arktos, that the business was not worth the price that had been paid for it. Although rescission of the business sale agreement occurred almost six months after the business had been acquired, that was a reasonable period in the circumstances for Arktos to become aware of the degree of discrepancy between the true worth of the business and the price paid for it, given that Arktos had to trade for that period to accumulate meaningful accounts against which it could judge the accuracy of the representations made in respect of the worth of the business. Relevantlyto the right to rescind, the business, at that time, remained a going concern and the controllers of Idyllic remained the lessees of the business premises. Changes to the business effected by Arktos did not remove any right to rescission. Idyllic could have re-taken possession of the business after rescission and in a short time could have continued the business in the same manner as it had conducted it before sale. 63 In substantial degree restitutio in integrum was possible at the time of rescission and it should be accepted that, at least in equity, the election to rescind was available and was duly exercised by Arktos on 22 December 2000. (See: Alati v Kruger (1955) 94 CLR 216 per Dixon CJ, Webb, Kitto, Taylor JJ at 223-224; Munchies v Belperio (1988) 58 FCR 274 at 283; Henjo v Collins Marrickville (No 2) (1989) 40 FCR 76 at 80-90). 64 Insofar as any further orders are required to restore the parties to their positions before sale, so far as it is practicable to do so, such orders may be made in equity, or by use of the broad powers provided by ss 82 and 87 of the Act. (See: Munchies at 287-288). 65 The plant and equipment the subject of the business sale agreement remained on the premises at the time of rescission and at the time of re-entry by Skycorp. It is to be assumed that Idyllic recovered that plant and equipment and no accounting is required by Arktos for conversion of any part thereof. Although between the date of the notice of rescission, 22 December 2000, and 5 February 2001, Arktos conducted the business on account of Idyllic it has not been contended that it is appropriate for there to be a separate account for that period and it seems to be accepted that if Arktos succeeds in its contention that it rescinded the business sale agreement there is to be a single accounting by Arktos for the period 1 July 2000 to 5 February 2001. Arktos must also account to Idyllic for the stock acquired under the business sale agreement and applied to the use of Arktos. At the time of sale the agreed value of that stock was $10,000. No stock was returned to Idyllic on rescission of the business sale agreement. 66 In addition, Arktos must account to Idyllic for the cost of use for the plant and fittings delivered by Idyllic to Arktos pursuant to the business sale agreement. In the absence of any other evidence in that regard the appropriate cost for that use should be taken to be equivalent to the charge for depreciation raised by Arktos in its accounts for the period in which it conducted the business. An appropriate sum, therefore, for the cost of use of plant, equipment and fittings would be $10,000. (See: Munchies at 289-290). 67 Arktos claims repayment of so much of the purchase price as has been paid, namely $130,000 and reimbursement for outgoings incurred to effect the purchase, namely a sum of $14,645.19. None of the latter outgoings was seriously contested by Idyllic. 68 In addition, Arktos claimed an operating loss of $34,324 said to have occurred in the period which it conducted the business. In attempting to do what is practically just between the parties a balance must be struck. Arktos should not be indemnified by Idyllic for loss incurred in the running of the business that may be attributed to mismanagement by Arktos, causing a loss greater than the risk of loss that arose when Arktos was persuaded to enter the transaction by reason of the misrepresentations. Under experienced management, perhaps the business may have operated at a profit, but it would have been at a level substantially below that represented and, as noted earlier, the accounts suggest that this was a declining business and there was a real risk that after 1 July 2000 it would be unable to trade profitably if the real costs of the business were duly accounted for in the accounts of the business. Arktos was not an experienced operator of a trading concern and in conducting a business possessing a limited margin for error, it faced the risk of incurring trading losses. 69 I am satisfied that it is reasonable to conclude that upon Arktos entering the business sale agreement the risk arose that Arktos would incur a trading loss in conducting the business. The question is, how much of the claimed loss was attributable to the vice of the transaction and how much may be laid at the door of unsound management decisions. Idyllic adduced evidence from customers satisfied with the service provided by Idyllic, who attested to various minor complaints in respect of the business conducted by Arktos. None of those complaints was directed to a particular matter of significance. However, the complaints did suggest that Arktos was not attuned to the importance to be attached to attending to the needs and complaints of customers and served to confirm that Arktos was slow to act to remedy the damage caused to the business by the resignation of the baker, Ross. On balance, I think it should be concluded that although there was a risk that Arktos would incur a trading loss once it took over conduct of the business pursuant to the business sale agreement, the amount of loss claimed by Arktos should be discounted to reflect the likelihood that part of the loss suffered was occasioned by mismanagement. Idyllic, of course, should bear the loss of approximately $8,500 sustained by Arktos after it had rescinded the business sale agreement, it not being contended that Arktos incurred such loss without regard to the interests of Idyllic. I consider the sum of $23,500 to be an appropriate limit to Idyllic's liability for the trading losses incurred in the period 1 July 2000 to 5 February 2001. 70 Ms Davies claimed that the conduct of Idyllic caused her to "lose" wages it is contended she would have earned had she not terminated her employment to take over management of the business on behalf of Arktos. The conduct of Idyllic caused Ms Davies to terminate her employment and take on duties on behalf of Arktos to manage a business that was not sufficiently profitable to be able to provide remuneration for Ms Davies in the period the business was conducted by Arktos. Ms Davies claims $29,777 being the difference between her former annual salary, $45,000, and the sum she was able to earn in other employment after Arktos rescinded the business sale agreement. I am satisfied that most of that sum is properly claimed and will allow $26,000 as an appropriate sum for the period 8 July 2000 (the date of termination of her former employment) to 28 February 2001 (allowing three weeks to obtain employment after cessation of the conduct of the business by Arktos). 71 Ms Davies also claims a sum of $35,000 said to represent the increased value of her former home that would have accrued to her had she not sold the property to obtain the funds lent to Arktos to effect the purchase and meet associated outgoings and provide working capital for the business. 72 That sum is not an amount payable to Ms Davies by Idyllic. As noted earlier in these reasons, the decision to sell her home was made by Ms Davies in advance of, and not in reliance upon, any conduct engaged in by Idyllic in contravention of s 52 of the Act. 73 The sums payable by Idyllic, therefore, may be tabulated as follows: Arktos: Refund of part-payment of purchase price: $130,000 Less: $10,000 (Stock not returned) $10,000 (Cost of use of plant and equipment) Total Deductions $ 20,000 Balance $110,000.00 Additional amounts allowed: Costs and disbursements incurred for purchase of business $14,645.19 Net operating loss $23,500.00 Interest $40,028.72 $ 78,173.91 Total $188,173.91 Ms Davies: "Lost" Wages $26,000.00 Interest $ 5,946.16 Total $ 31,946.16 74 Interest has been calculated at the rate prescribed pursuant to s 51A of the Federal Court Act 1976 (Cth), 10.5%, and has been applied from 30 June 2000 on the sum of $110,000 and from 5 February 2001 on the balance, save for $6,796.74 of the purchase costs, the median date for expenditure of which appears to be about 1 August 2000, and for the remainder of purchase costs $7,848.45 the date of expenditure of which appeared to be proximate to the commencement of trial, 15 July 2002. 75 In respect of that part of the conduct by Idyllic in trade or commerce done on behalf of Idyllic by Price or Moore, it was pleaded that Price and Moore acted within the scope of their actual or apparent authority as directors of Idyllic or, alternatively, as agents for Idyllic. That pleading did not allege that either Price or Moore engaged in conduct in trade or commerce on his own account. The conduct described as the conduct of Idyllic was pleaded as conduct which contravened s 52 of the Act, and s 10 of the Fair Trading Act 1987 (WA), and the applicants sought damages and orders pursuant to ss 82 and 87 of the Act, and ss 79 and 77 of the Fair Trading Act. Although such a pleading raises the issue whether the Fair Trading Act applies to conduct of a corporation that is conduct to which the Act applies, it is unnecessary for the outcome of this case to decide that question. 76 Section 82 of the Act (or s 79 of the Fair Trading Act) permits a person who suffers loss or damage by the conduct of a corporation done in contravention of s 52 of the Act (or s 10 of the Fair Trading Act) to recover the amount of loss or damage from "a person involved in that contravention" as that expression is defined in s 75B of the Act (or s 68 of the Fair Trading Act). It was not pleaded against Moore or Price that either was a person involved in a contravention by Idyllic of s 52 of the Act (or s 10 of the Fair Trading Act). Accordingly, it was not pleaded how Price or Moore came to be "a person involved in such a contravention" as defined in s 75B (or s 68 of the Fair Trading Act). If it were contended that each was "knowingly concerned" in the contravention of s 52 of the Act by Idyllic, there was no pleading of that contention nor of any material facts relied upon by the applicants to prove knowledge was held by Moore, or Price, of the facts which gave Idyllic's conduct the character of a contravention of s 52 of the Act. (See: Wheeler Grace & Pierucci Pty Ltd v Wright (1989) 16 IPR 189 at 209). In particular, no assertion was made that Moore or Price, severally, had knowledge that Idyllic had no reasonable grounds for any representation made by Idyllic as to future matters. (See: ACCC v Michigan Group Pty Ltd [2002] FCA 1439 per Dowsett J at [303]). 77 In addition to the absence of any pleading of the foregoing issue, no submissions were made on the point. It follows that no derivative liability under the Act, or the Fair Trading Act, was made out against Price or Moore in respect of conduct by Idyllic held to contravene s 52 of the Act, or s 10 of the Fair Trading Act. 78 I turn now to the case brought against Moore by Arktos for breach of contract and in negligence. It was agreed on the pleadings that an oral agreement was made between Arktos and Moore for the employment of Moore as manager of the bakery component of the business. It was a condition of the business sale agreement that Moore enter an employment agreement with Arktos upon the terms of the agreement annexed to the business sale agreement. That employment agreement was not executed by Moore. It was contemplated by the parties that Moore would remain as bakery manager for three years, that is, until the balance of instalments of the purchase price receivable by the Moore family trust had been paid. Moore, of course, had an interest in the business being able to operate successfully and profitably. In his defence, Moore stated that under the terms of the oral agreement his duties were to assist Ms Davies with the day-to-day management of the business as directed by Ms Davies and to assist the employed master baker, Ross. It was admitted by Moore that it was an implied term of the employment contract that he would carry out his duties in a skilled and competent manner and would exercise reasonable care. 79 Moore did not deny that in the course of his employment the quality of bread and bread products deteriorated significantly, that bread and bread products were wasted; that on occasions customers' orders for bread and bread products were not filled; and that customers of the business for bread and bread products were dissatisfied with the business's products and ceased to patronise it. Moore denied, however, that those events were due to negligent performance by him, or the breach by him, of his duties under the employment contract. Moore asserted that the foregoing occurred by reason of poor management by Arktos. 80 Although soon after taking over the business, Ms Davies, on behalf of Arktos, expressed concern to Moore at perceived deficiencies in the level of performance of his duties, particularly in respect of supervision of bake quantity and in fulfilling orders, I regard those events as introductory problems resulting from the change in control and not a major or continuing problem. 81 Moore and Ross had produced bakery products to customer satisfaction before the business was sold by Idyllic. It appears that sales in July 2000 would have been affected by the loss of commercial customers who had ceased to place orders in that month and perhaps in the preceding months of May and June. The turnover of the business fell by 25 percent in July measured against "book" figures for July 1999. It increased by 10 percent in August. However, it was not suggested that the loss of those customers was attributable to deterioration in the standard of goods produced by the bakery. Whilst Moore and Ross carried out the baking duties the standard of product would have been equal to that offered by the business before sale. I take the admitted deterioration in baking performance to refer to the events that followed the departure of Ross as a baker and until he was replaced in October 2000 by a permanent baker. 82 The loss of the services of Ross in late August 2000 was of major significance in the deterioration in performance of the bakery. The principal cause for Ross withdrawing his services was contributed to by lack of finesse in personnel management displayed by Ms Davies on behalf of Arktos. 83 Ms Davies, apparently without consultation with Moore, or Ross, attempted to "trial" another baker, presumably with the intention of replacing Ross. Although instructed by Ms Davies not to attend, Ross did carry out baking duties on the same shift as the "replacement" baker. Moore paid Ross for doing so. It appears that it was as well that Ross did attend and work that shift. The "replacement" baker was unable to perform the work. 84 The outcome of that event was that Ross gave notice of termination of his services and Ms Davies was unable to employ a baker to replace him for some time. 85 It was not suggested by Arktos that it was a managerial duty to be performed by Moore that Moore obtain a replacement for Ross or that Moore breached any duty of care in that regard. Arktos purported to exercise a management prerogative without seeking advice from Moore and accepted responsibility for dealing with the consequences of that act. In late August, Arktos informed commercial customers that no bread supplies would be produced by the business for one month. A full-time baker was not employed until October. Part-time bakers were employed in September and for about the first two weeks of September no bread, or bread products, were baked on the premises. I accept that for a short period Moore attempted to cover the gap by working long hours himself. 86 Although turnover improved by approximately 20 percent in the month of September 2000, in the months of October, November, December 2000 and January 2001 falls in turnover were approximately 20 percent, 33 percent, 32 percent, and 39 percent respectively in comparison with the corresponding months of the previous year. 87 Although on one view it may be said that the managerial duties of Moore may have extended to providing advice on locating and employing an appropriate replacement for Ross, it would appear that Arktos assumed entire responsibility in that regard and no breach of duty by Moore arose. 88 In early October 2000 Moore took sick leave and an incremental progression to cessation of duties by Moore began, an outcome that appears to have been the subject of mutual acquiescence between Moore and Arktos. Part of the reason for this was the added burden of personal problems that confronted Moore, in particular suffering ill health in the form of an ulcerated leg. By the date of rescission on 22 December 2000, Moore had not returned to work. 89 Between early October and the date of rescission Arktos exercised direct management of the bakery, selecting and employing a baker and supervising that work. It was left to Moore to return to duties when he was fit to do so, and although contact could be made with Moore as required and if Arktos considered it necessary, it does not appear that managerial advice was sought from Moore at any time thereafter. 90 Having regard to the foregoing, I am not satisfied that the claims by Arktos against Moore for breach of contract or in negligence have been made out. 91 After trial the Court invited counsel to provide submissions on the question whether the Court was under a duty to act to protect the revenue and to refer evidence received in the matter to the appropriate authority if the Court were to make findings of fact to the effect that the imposition and collection of income tax had been evaded by the conduct of any party. (See: Malpass v Mayson [2000] Fam CA 1253 at [31]; T and T [1984] FLC 91-588; P and P [Tax Evasion] [1985] FLC 91-605; Petera Pty Ltd v EAJ Pty Ltd (1985) 7 FCR 375; AvA and BvB [2000] 1 FLR 701 (High Court of England – Family Division); "Colourable evasion of contractual rights when the court reports facts to the authorities" (1996) 70 ALJ 886.) 92 In the end, findings of fact relevant to that question could not be made other than to say that the marginal profitability of the business suggested that the true expenses of the business exceeded "book" figures. I have determined that this case does not impose an obligation on the Court to refer the matter to a relevant revenue authority. 93 In any event, upon publication these reasons become a matter of public record which may be expected to provide notice to the relevant authority and enable it to determine, in carrying out due administration of collection of revenue, whether inquiries should be made into the financial affairs of a party to the litigation. 94 In respect of the matter of costs, Idyllic should pay 95 percent of the costs of Arktos and Ms Davies, those costs to be taxed as one set. There should be no order for costs in respect of the respondents, Price and Moore. The joinder of Price was not subject to objection and no separate defence was filed on his behalf. The issues raised in the pleadings required no separate instructions to be provided by Price. Furthermore, the acts of Price contributed in a significant respect to the liability incurred by Idyllic and in the exercise of the discretion available in respect of the awarding of costs, the particular circumstances of this case made it inappropriate that any order for costs be made in favour of Price. Although claims against Moore failed, he was not separately represented and no separate defence was filed. The defence of the claims raised against him was conducted as part of the overall defence by Idyllic. The principal issue in the case as conducted, remained the question of liability of Idyllic. Although instructions would have been received from Moore separately for preparation of the defence, the issues pleaded against Moore received little attention at the trial. Any question of the personal liability of Moore receded in importance in the litigation. I consider the appropriate order for costs to be reduction in part of the costs payable by Idyllic to Arktos and Ms Davies. 95 In respect of any foreshadowed claim by Skycorp against Arktos and/or Ms Davies, those parties are to be indemnified by Idyllic in respect of any amount that may be found due from those parties to Skycorp in respect of the occupation of the business premises. I certify that the preceding ninety five (95) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee. Associate: Dated: 11 April 2003 Counsel for the Applicants: D M Stone Solicitor for the Applicants: Williams & Hughes Counsel for the First and Third Respondents: J C Curthoys Solicitor for the First and Third Respondents: Michael, Whyte & Co Dates of Hearing: 15, 16, 17 July 2002; 23 October 2002 Date of Judgment: 11 April 2003